Masterclass 1.0 - Class 5: Tax-Smart Distribution Planning Part 2

welcome everyone see everyone uh joining here we'll give everyone a few moments to get

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started or to get into the webinar before we get started so we'll just hang tight and

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um welcome see some familiar names here so

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we have some a lot of attendees that have attend Ed you know this is our

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fifth session so thank you all for joining like seeing repeat

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attendees I think the first thing on our agenda here is some awkward silence well we wait for everybody to get in the

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room Hold Me Back Justin I'm ready I always like to get a a reminder

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of how big that bowl is on the back of your wall Jason yeah that's a monstrosity for

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sure there you go that that'll feel some awkward silence there you go the bull is Big the bull is Big Bull is

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back all right we'll give everyone just one more minute and then I'll go over some housekeeping items and just a few

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reminders and we'll get started after that so just hanging

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tight I like to see the partici pit headcount just settled down a little bit

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for folks joining so we're about

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there all right well thank you all for joining this morning this is the fifth Master

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Class out of uh s six of them and as a

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friendly reminder we have the Q&A at the bottom there so if you have any

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questions through throughout the webinar please submit them in the Q&A and if you

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see a question in there that you would like to have answered please upload it uh in the chat there we will drop some

2:12

helpful information a lot of people ask is this recorded or where can I find the

2:17

register how to register for the next one um we do have that on our website

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and we do have it uh we do send it out as a followup so just know that th that

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information will be provided afterwards also at the end of this webinar if you

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haven't already submitted your cfp C or cfp number please uh submit that in the

2:39

survey at the end of this webinar as a friendly reminder you must attend at

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least 50 minutes to get uh cfp credit and then um oh there was one more thing

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that oh there are some people that ask for other types of certifications for like the RCP certification so please put

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that in the survey as well if you're looking for a certificate of attendance um and I I will send that out to you

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afterwards so I think we've given the housekeeping items if you have any further questions as always pop them in

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the Q&A um and I'll pass it over to Justin all right thank you Taylor um and

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welcome everybody hello Jason good to see you again my friend um back for

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session five of The Master Class um we just have one more session left in two

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more weeks um knock it out uh before 4th of July so hope everybody can uh can get

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to that one as well if you are looking for any of the the past materials on the

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sessions before please check out the website for The Master Class there's tons of stuff there including full

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recorded videos of those sessions plus there's some bonus material some extra videos so um we're we're doing our best

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to cover you know a lot of the questions people have asked that we weren't able to to hit

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um today is part two of taxmart distribution planning um and we're going

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to cover a lot of the uh materials that cover some of the questions that you asked last time but we didn't get to um

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but just to do a quick review of part one just so we know where we're where

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we're starting from um Jason talked about you know kind

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of where the value in taxmart distribution planning comes from from an analytical standpoint what are the what

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are the things in life that uh that make this kind of planning so important and valuable um which are

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the three tax Torpedoes one is required minimum distributions which will force

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um I I think the best way to think about it is it forces taxation um you know

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really you don't have to spend required minimum distributions but you do have to pay taxes on them um the second is the

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widows penalty so if one person in a couple um dies mid plan the uh the tax

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rates the tax thresholds go from married filing jointly to single uh which are

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lower so you'll be paying higher taxes and the third is beneficiary taxes so considering you know what kind of um

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asset is being um inherited by someone and what that person's or those people's tax situation is so if you have you know

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High income kids for example um that can be a big tax torpedo and that's where

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kind of the analytical bang for the buck comes from in uh tax Mar distribution planning we talked about the steps in

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income lab for doing taxmart distribution planning is which is you

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you take a plan you know that you've built using the um the method this the process that we went through in the

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first three sessions um and analyze it in tax Labs so that really gives you an

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automatic view of what would this plan look like if you went if you distributed

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um the Assets in all these different ways including Roth conversions um easy

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one step no extra work and then choose a distribution strategy that may be essentially the end

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end of the uh the uh the the story there but we then talked about how you then

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re-evaluate you know if especially if you're doing Roth conversions um do those Roth conversions cause enough

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extra taxation that now net spending is no longer enough um if it is still

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enough because you had a big you know Surplus and how much you could spend you just weren't spending it all you're done

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uh if it's not enough then we talked about how you can create a plan that targets a net of tax spending level and

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grosses up the withdrawals in those Roth conversion years to cover the taxes um

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and so that that's kind of the main choice point in this in this process uh we talked about the different

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withdrawal strategies that are covered in tax lab uh including prata which is basically pay no attention to taxes tax

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ordered which is probably the default that you'll hear out in the world world you know taxable tax deferred taxfree

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that kind of thing and bracket management um we we covered this but

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there were a lot of questions on it which is okay what do we how are we looking at taxes in in the app um and

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the key is we want to take into account everything that relates to taxation so

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this isn't we're not you know just looking individually at ordinary income tax at the federal level for example we

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want to take everything it you know we wouldn't choose a tax strategy because it minimizes ordinary

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tax if it also you know maximize some other tax to counter counteract it right we want to look at the whole the whole

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picture and so we're covering FICA ordinary tax long-term cap gains net investment income that's the ACA tax uh

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Medicare Irma we treat as a tax because it essentially is um state and local

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tax we talked about how to evaluate plans in tax lab so the core being if

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you are asking the question how much can I spend you will see a difference in

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total net income and total net Legacy and so the two of those are your um that

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combined that's the that's the added value if you are choosing a how can I

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spend X plan you're targeting a specific net of income net of tax income level then there will never be a difference in

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total net income because you have pegged that to be one thing uh but so all of the value of taxmart distribution

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planning will be measured in the net Legacy um

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section um I think with that I'm gonna before we

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get into uh into some some other question or some other uh topics for today I want to take some time to review

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kind of Jason's um you know section of last week

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um and kind of ask you Jason for you know kind of some of your key observations or you know principles that

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we shouldn't forget when we're doing um taxmart distribution planning kind of what what's all this about and what

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should we have our mind on yeah so first want to acknowledge look like we've got some people using AI

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technology uh to take notes so looks like we've got some some tech Advanced folks which I'm sure they'll appreciate

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income lab we're certainly Tech Advanced uh in that department but you know you think about it I I started this kind of

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uh approach when I got my ricp back in 2018 and when you think about you know

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decumulation you know this is extremely important place to focus to improve our clients plans affect their lives and

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ultimately not to mention really impact your business and so you know the way I think of it is just take a step back

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we've got accumulation that's building your wealth we've got decumulation that's living your wealth

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and you know what I've learned over the last decade uh in general plus working with clients as retirees really remain

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Frugal in their retirement and you know they often times don't give themselves permission to spend and so this tax

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smart distribution planning has helped my clients really pivot from this more

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scarcity mindset to a mindset of abundance and how do they leverage these dollars the balances in their accounts

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Andor the taxes that they save to really start to pursue some of their goals and

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so at the end of the day my goal for clients is to have them say I glad I'm glad I

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did versus I wish I would have and so this is this is all interrelated to

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ultimately income lab whether that's guard rails whether that's you know tax lab in particular but I think of an

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example that I think will really resonate and that was a client that I had was a senior leader retired from a

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Fortune 100 company and well-respected industry leader had an impeccable

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balance sheet like many folks done a really good job saving investing saving investing and frankly his resources far

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outweigh to spending capacity and he lived pretty pretty modestly sure he' take a family vacation once a year rent

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a house on a beach but other than that was was quite modest and so you know like many in this demographic he was

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really underspending his resources so cut to a year ago he's diagnosed with a rare illness and he starts to question

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kind of his mortality and ultimately what the future holds and so he he had a

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desire to be closer to his loved ones specifically his grandchildren uh he wanted to have a better relationship

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with his grandchildren for the remaining years he was going to have on this Earth and uh yet even after this health event

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it was still difficult for him to to shift his mind to truly live as well and so let's just let's put a pin in the

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story for a minute and let's just talk about you know how how do we help clients live their well well I think

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it's it's fair to acknowledge that the folks that are registered and with us here today they probably thrown away the

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napkin we're not doing the back of the napkin calculations anymore Justin that's that's long gone the spreadsheets

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you know world's Financial world's far too complex to rely on paper KCK calculations and spreadsheets but you

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know I think I think it's fair to assume that our audience uh this audience with us today is really evolved in more

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planning focused and so the difficulty with the mainstream financial planning

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software that I found was just kind of the inadequacies around attempting to model distribution strategies right your

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conventional strategy your pratus strategy uh the tax bracket strategy um

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dynamic dynamic time sensitive of course we got tax planning that's going to be where do Roth conversions fit into the

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equation what tax brackets should I Target um are Roth conversions still advantageous if they extend tax cuts and

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jobs act I know we hear that a lot right um and then also you know how does this

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these Roth conversions how do the medic impact my medicare premiums my Irma brackets what about these these rmd tax

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Torpedoes and you know when it comes to generating income there are really a number of methods and strategies that we

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can consider but what's been really enlightening to me um you know since

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utilizing income lab and and and tax lab in particular is where we're able to run

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various analysis uh to kind of determine which strategies are optimal or combination strategies maybe that are

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optimal so to compare and contrast okay here's what a client is doing currently or maybe a prospect here's their current

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approach their current distribution strategy the current tax planning strategy but what if we compare in

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contrast to this tax smart distribution and so this is where I I'll

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kind of add what I call phraseology and where I think this is is helpful with some scripting and that is you know if

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if you have a client in front of you and if you are to say you know if you follow your current path is slated that you'll

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pay about 97,000 uh in cumulative taxes over the course of year Point um and you know it

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is anticipated that you're tipping the government by about $338,000 that is the difference between

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the current strategy versus the proposed strategy right and so you know I ask the

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question is that by Design and you

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know how did this strategy come to be and ultimately the answer is they likely

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don't know right and so you know quantifying how tax smart distribution

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planning can reduce the client's task bill is is one Element but literally

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let's take it a layer further and that layer further is how would this

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$338,000 reshape your family's life what would you do with this money um if we

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were able to help you save these tax dollars and this really opens up our our

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client's mind to the possibilities and in my client's case it opened up their eyes to really a whole new way of living

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a whole new way of thinking and that's what you know Justin weave coined you know kind of living your wealth and you

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know he's always wanted to spend more time with his children and grandchildren but since utilizing the software we were

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able to put together um you know this tax smart distribution strategy layering

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in Roth conversions and to demonstrate and quantify here's the total taxes you're tipping

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the government with the current strategy versus a new approach and so that's that ultimately gave him the confidence to

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pursue some of these goals and and actually purchased a condo uh near his grandkids watches his grandkids two

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weeks out of every month um and really gets to spend time with them that with

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without the planning that we had done together and the psychology and and the conversation Behavior type conversations

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he probably never would have felt confident enough to to embark on this this new this new condo and getting that

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quality time that he so so deeply deserves and desires I think that's uh such a great

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takeaway you know especially for those of us like me who who can be very analytical you know obviously the

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analytics are are huge value and like you said the tax system is so complex we really this can't be back of an AFK and

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stuff but you have to connect it with someone's actual life and what this what this means for them so I think that's a

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great some of those uh that word smithing is is really great and an important uh an important part of this

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right it's not just throw some numbers up on the screen and there see uh we go to we got to do a a so what um

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here um all right so let's uh let's get a little bit into some of the more

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advanced stuff for part two here and actually some people have already uh asked questions in the in the Q&A on a

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few of these topics so let me let me just review a little bit I mentioned you know the the three kind of buckets of

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strategies that we have prata which is the uh you know pay no attention to taxes um tax uh tax type based so

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taxable taxer to taxfree for example and then um bracket management where we do Roth conversions up to a particular

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bracket um a few people had questions on kind of um you know why by default are

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we comparing you know Roth conversions to taxable tax for taxfree um the reason

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is this is really Apples to Apples because you're s behind Roth

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conversions um you're doing taxable text for taxt free and the reason for this is

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just you know analytically that's that's uh um the best way to do it there are

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some questions in here about are there other things that income lab will add to the tax lab

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um yes uh so the one or actually two that people have asked questions about that that are that are coming um are

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adding Irma brackets to this list to the bracket management um list so not just

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ordinary brackets but Irma brackets and also a you know lumpsum one-time huge

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Roth conversion just so that you can can compare that um we also have people asking about what about bracket

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management but not doing Roth conversion so basically spending the money um instead or moving it to a taxable

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account or maybe only doing up to that bracket uh if you're spending more and then taking from um taxable um that is

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all doable and we may add that at some point the the main reason

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we haven't done it so far is um basically like that will always perform worse than Roth conversions so if you if

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you're taking the money out up to a bracket uh putting it in a Roth is going to be more long-term tax efficient than

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putting in a taxable account and spending it so that doesn't mean that it's not something that we will add someday or you might want to consider

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but uh but that's the main reason that we haven't added that so far um all right so that kind of covers

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some of the some of the the basic questions that people have already been asking um another bit that I'll just ask

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before getting back to to Jason here is um you know how are we paying the taxes

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in this so to kind of set this up um what you're doing in tax lab is really you're saying all right I have this plan

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this plan includes includ spending some of my portfolio money how should I Source those withdrawals and should I

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consider Roth conversions um by the way just asking your presenting that um as

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like to a to a client from what I've heard that is a basic question right that is just a you know hey how am I how

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am I living on my money how how am I developing this um and it's amazing a

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lot of times clients and Prospects won't won't have had that question answered before so you know don't underestimate

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just how how framing it in that that simple way um can actually help them um

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but one question then will be okay if I do Roth conversions for example um how will I be paying the taxes um so here's

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how income lab assumes that everything will be sourced so first um we would be

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paying taxes from non-portfolio income if you happen if this is one of those years where there's some big you know

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income event maybe somebody's still working and has wages right that's the first source of paying taxes and the

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reason is you already had to pay taxes on that money so it's post tax money um so uh it's the it's the most efficient

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way to pay um taxes then it will pay the taxes from uh non- deerred accounts so

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that's typically going to be a taxable account um or actually another way that it would

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pay the taxes is if you had uh money that's already being forced out of an account so maybe it's a non-qualified

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Deferred Comp um where you're just you're getting money I would think of that it's almost like non-portfolio income right it's just money that's

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going to hit your account you're going to pay taxes on it right maybe you're maybe you're distributing some money from an inherited IRA right it's going

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to pay the taxes with that and only finally once you've exhausted those

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options would the software assume that you would pay the taxes from tax

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deferred accounts in other words you would you would net out the conversion so so you might take you know $100,000

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from your IRA but only 880,000 hits the Roth um so that's sort of this waterfall

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um that's assumed behind the scenes in in kind of how the the taxes are paid um

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in a Roth even even with if you're not doing a Roth conversion this is this is how we're assuming that the taxes are

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going to be paid again because that's that's just analytically the most um the most efficient way to do

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it um let's see a few other questions I'll hit

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um we've had um a lot of questions around kind of

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finetuning um and and uh a plan so I

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want to take a little bit of time to go over a few of those options

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um let's see

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here and this is this is basically Ally you know as you know the example we just went over where there was you know

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almost $350,000 in today's dollar value um for this client

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um there that's that's sometimes at the end of tax planning there are other

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pieces where you can kind of fine-tune um a plan to add more value um

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one big one is qualified charitable distributions uh or qualified charitable um deductions so

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that's taking money from an IRA um at age 70 70 and a half or or

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thereafter um and sending it directly to a to a qualified charity um so I've

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created um some plans that we can uh that we can

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look at here so for example um

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I'm going to what I did here is I created a plan it's fairly fairly straightforward it has some taxable

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money it has an IRA um and I'm going to compare it to

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and I and I made it spend $10,000 a month um net of tax just so that for this example we can just focus on this

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number and and see all of the value you know kind of in one in one

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place so what I'm going to do is now compare it to another plan that I built that doesn't have the

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qcds so it just has um oh and I want to I'm going to compare

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Roth conversions to the 24% bracket for both plans so this is the thing many people may not have noticed is you you

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can you can compare two strategies for a single plan or you can compare two different plans um you can even compare

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different strategies for different plans in this case I'm going to use the same strategy both of them Roth convergence to the 24% bracket one with qcds and I

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also put a a floor on the um on so I basically I'm telling it not to

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um not to convert every single Dollar in my IRA I'm a little bit for my rmds kind

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of let me pay some take out some rmds later and you can see completely to

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Apples right because I'm doing the same Roth conversions I'm adding an extra

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$270,000 in value by having some qcds

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I'm not maxing out the qcds here I think I put in um I we can check it but um I

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think it's like uh I think it was just $112,000 a year

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um so you know not not even close to the to the max on the qcds um but wow I mean

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that's that's a pretty big deal um because remember if

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I if I go back to comparing [Music]

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um right just this that that qcd and and floor is really adding a lot of value so

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how do I how do I access those kinds of you know Advanced Tax planning um I go

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to the plans advanced settings and the very first section is taxes and I got a lot of goodies here so um for example

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here I've said hey don't let Roth conversions or tax ordered withdrawals

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take my tax deferred balance below $400,000 um this is also a place where

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you know I I might have a client who says I would never do a Roth conversion more than you know $50,000 or $80,000 in

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a given Year and that not be the most efficient thing for them but if it is a strongly felt thing you're going to want

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to be able to reflect that um this may be a place where if there are years when

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a Roth conversion would not be a good idea because maybe you're pre pre-65 and you're trying to get um ACA

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credits against uh health insurance this would be a place where you'd want to you know customize the years when it's

26:52

allowed maybe you know for the first three years I'm I'm in that position so I'm not going to allow Roth conversions

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those years because I don't want my income to creep up right so these are these are the kinds of things that you can that you can specify here let's go

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to um life Hub and have a look at [Music] um at where you can see the

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uh the charitable expenses um so I'm only going to get those once I hit 70

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and a half um and so finally I guess this person didn't turn 70 half until the very end

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of the year um so this is one where we treat qcds only as available literally

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Once you turn 70 and a half it can't be the year of um so I get by um 2030 I get

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my full qcds and so you see I'm I'm sourcing some of my income that's going

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to come out of my IRA taxfree um to pay for those charitable that charitable

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giving um and that's the basically it's another way of getting some money out of

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in this case only IAS but out of tax deferred accounts um taxfree um that'll actually also work

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for inherited IRAs by the way so you can still do qcds there um so those are a few of the um kind of

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advanced uh approaches that you know people have asked questions about um

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today but certainly in in the past as well um and all of them add um value to

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um one that somebody brought up last time but we didn't talk about today is um Social Security timing so this is a

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place where if you're going to do Roth conversions um delaying Social Security until later typically after the Roth

28:42

conversions um will have kind of a a multiplying effect because now um the

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taxability of Social Security will be much lower um once you're kind of done with those WTH conversions because your

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um the combined income that's part of the Social Security calculation will be much lower this is a really important

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thing that surprisingly a lot of times um is not taken into account in this

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kind of analysis um so you'll often have you know software that's not so focused on

29:14

retirement taxes just asking you hey what's your social security taxability going to be you know let's assume 85%

29:21

well that's that's ridiculous uh you know the the the software should tell you what the Social Security tax ability

29:27

is not the other around um and many times even with with fairly High income plans it is not always capping out at

29:34

85% there's you know that that calculation is fairly complex um Social

29:39

Security taxability brackets are not adjusted for inflation so later in the plan they'll be more taxable and so on

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this is a thing that needs to be um done correctly um and so you definitely want

29:50

to make sure you're taking in Social Security taxability into account in the best way that you

29:56

can all right all right so that I think covers um some of the uh some of the main kind

30:04

of more advanced questions that we've had um I can I can cover a few more of them

30:12

uh in our next and in my next session but I want to get back to uh to some of the things Jason uh mentioned there um

30:20

in particular you mentioned just as one of your examples the tax cuts and job act sun setting um

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that along with some other questions we've gotten about kind of the uncertainty of future tax rates um

30:34

uncertainty of things like you know changes in WTH rules you know there are a lot of kind of theories out there

30:40

about what the future could look like how do you Jason address just the uncertainty of the future in general

30:46

when you're doing this kind of planning yeah I think it's important to acknowledge that uh life is an evolution

30:54

the government is an evolution the tax code will be an evolution and unfortunately we only know uh the

31:00

current IRS tax legislation so we have to to work off of that now that said you

31:06

know I I usually will we'll talk a little bit about the government in general and just

31:13

the idea of the federal deficit and what relates with most of my

31:20

clients who are entrepreneurs and and business owners senior leaders is the idea of business and we need to have

31:27

more Revenue then we have expenses in order to balance our own budgets within our homes

31:34

in order to be successful within our advisory companies ra or or whatever

31:40

your your firm is and so you know as you think about the government uh revenues

31:45

are are taxes and expenses are spending and spending far exceeds taxes expenses

31:54

far exceed those revenues and so I'll just ask a simple question and that is do you think taxes will rise

32:00

or fall in the future and um I've I've done I do a lot

32:07

of webinars seminars uh those types of things I've I've had got well over a

32:12

thousand registrants um just in the last few years and I've only had two people

32:17

that said they thought taxes were full and so then the follow-up question is if we do believe taxes are going to go up

32:23

in the future would you rather pay taxes today or would you rather pay tax taxes tomorrow and this is where the

32:29

psychology comes into play right because um the value of a dollar um today versus

32:37

the value of a dollar tomorrow this is where clients you'll run into a little bit of of trouble and so what I like to

32:44

do is I believe in taking away the objection before it's an

32:51

objection so um I will actually mention the idea that the tax code is evolving

32:57

the tax code is Ever Changing um tax cuts and jobs Act is set to sunset in

33:02

2026 um do we know if it will be extended or not I can't confirm that um that said with the current legislation

33:09

in place here's the outcome here is the the results here's the quantification and um you know like I

33:17

said I I believe in kind of taking away the objection before it's an objection and it's it reminds me Justin we were

33:23

talking about this the other day you know for for you who can't see my lower Bond I have skinny legs okay and so

33:30

people make fun of my legs and what I do is I actually take away the humor uh

33:35

from them so they can't use it against me it's kind of like that if any of you seen Eight Mile and Eminem and and how

33:41

he would make fun of himself while rapping so others couldn't make fun of him in advance well this is similar to

33:47

taking away that that government spending and the idea if taxes will rise or

33:54

fall yeah and I think that the other key thing around like you said Mo most

33:59

people if you ask them that question uh if they thought about it they're probably going to say oh I think they'll go up well well if that's true then that

34:07

that means we're probably understating the value of Roth conversions right but you know uh under promising overd

34:15

delivering is no one's ever been uh you know too upset by that right so that's not it's not necessarily even a problem

34:21

for this kind of tax smart distribution planning yes maybe you know in these statistics maybe this number is is is

34:27

lower than really it will be but that's fine I mean we already know that we don't know the future so uh you know the

34:33

numbers are going to be different than the the ones we have here um so I agree I think uh making sure you just address

34:39

it up front if you think it's going to be a big deal you you'll hear a lot of things I know somebody mentioned that Ed Ed slot is really pushing higher Roth

34:46

conversions um because of tcj sunsetting deficit spending like you said um you

34:53

know clients I I hear will even um kind of have some concern over whether roths

34:58

will always be taxfree or or something like that I I don't know anything about those but that's kind of a a just a

35:04

cloud of worry that people have the nice thing is though um if people are

35:09

thinking in those terms um except for those rare people who think taxes will go down all that means is that you're

35:15

under promising and overd delivering here and um it also I think draws us

35:21

back to a point that you made last time Jason which is that this taxmart distribution planning is not a one-time

35:27

thing this is you give somebody a playbook for the next 30 Years just go do it um it is we're going to have to

35:33

review this at least annually right so this is really to get the most out of

35:38

taxer distribution planning um people should be coming back right there should

35:43

be an ongoing process it is yeah it truly is a living breathing um software

35:50

and a living breathing document that we just don't print and put on our Shelf and uh yeah it's important that as our

35:57

lives of all um you know my life is very different today than it was five years ago 10 years ago and so on and and our

36:05

clients lives are similar our clients lives will be different in the future and as will the tax code so we just need

36:11

to be able to evolve we need to be able to adapt we need to be able to adjust and you know utilize the current

36:16

information that we have uh in its accuracy and and move forward with that

36:21

information yeah so let's get um to this question of kind of making decisions on

36:28

which approach to follow um and one thing that a lot of people use and I think you know rightly so is this um

36:35

break even um calculation which is just cumulative taxes paid right um so you

36:42

can see how they're just stacking up over time right and it this is kind of not uncommon uh for somebody in in the

36:48

age range of this hypothetical household where it's you know 20 to in this case

36:53

21 years um for kind of you know the the the cumulative taxes on

37:01

these two approaches to um to match up and then kind of after that it's you

37:06

know everything everything is gravy um so um Jason you know how do you think

37:14

about break evens you know especially given all the uncertainties not just in the tax code but also in in in life

37:20

right will each person live that long you know what about beneficiaries and so on how do you address that when people

37:26

ask this question about you know when is it worth it yes absolutely so usually there's

37:33

there set of questions in advance and that is really understanding what what

37:38

some of the top priorities are for any given client or Prospect and is Legacy

37:45

specifically balances at the end of plan as an inheritance to their errors is

37:52

that a goal or do they have a Target goal a target number that they they want

37:58

to pass along um and then it is related to okay well as as far as you know Roth

38:05

conversions are concerned in that break even it's a matter of who's going to benefit is it going to be the the client

38:13

the or is it going to be the error that inherits the dollars and at the end of the day it's going to be one or the

38:19

other depending on a person's lifespan um but just the idea of not tipping the

38:25

government and keeping as much of our hardened money in our own pockets as possible and whether it's the client's

38:32

pocket or whether it's their heir's pocket in the end that's usually the driving force now you might take it a

38:39

layer further and say okay well Jason you know I have a client that doesn't want to pass along uh substantial nest

38:46

egg and Legacy at the end of plan they would rather gift it with a warm hand and a beating heart actually just got an

38:52

email from a client a little little earlier uh before the session and we were talking about the importance of of

38:59

gifting while our children are in need and uh he's got a couple adult children

39:04

he's got a number of grand kids and um you know he's just in a situation where

39:09

uh one of his children needs a vehicle the other children could use some help um you know with a home Remodel and he

39:15

wants to be able to gift to them today and so once again that just goes back to

39:21

you know what's the purpose what's the goal and really understanding those priorities and that allows you to then

39:26

position the question on that break even Point yeah so one way to think about

39:32

that is in this case you know it looks like we're doing um six years of of Roth conversions or maybe it might actually

39:39

be fewer than that um maybe it's four and basically after that you're kind of

39:44

in the driver's seat um whereas in these years where we have yellow if you had to

39:52

you know help a child make a down payment or buy it you know that's going to be that's going to have a larger tax

39:58

hit so kind of those unexpected expenses I guess that's another unknown right where you you've kind of you at least

40:04

freed yourself up from taxes being a consideration after you've done done the Roth conversions and to your point

40:12

Justin sorry up there this just came to me uh and that is you know in this

40:17

instance there's going to be some one-off distributions that we weren't planning for and so depending on where

40:22

we pull those dollars from you know fortunately they have taxable accounts and yes there are some capital gains

40:29

those capital gains are going to come into calculation we're modeling out those raw conversions right so so it is

40:35

a it's a year byye it goes back to your point you just mentioned earlier and it is a year-by-year calculation it's not

40:41

like we can just hand the client here's your plan um and and you're going to be

40:47

set it and forget it for the next seven years follow this road map because life throws us curve balls we have changes we

40:53

have challenges um and so we need to be be able to

40:59

we had a few questions on on that Legacy you mentioned there like what if a client is you know really they they do

41:06

have some um some beneficiary uh desires um or if they're just thinking

41:13

about the beneficiaries if if life isn't as long as they thought it would be so net Legacy calculation here just we've

41:19

had some questions on this how do we do it um this is end of

41:24

plan the inherit the inheritor of the entire portfolio um is a 55y old couple

41:32

and they cash the whole thing out okay now granted that might not be the most tax efficient thing to do but we're kind

41:39

of saying hey a it's not entirely uncommon and these days because of you

41:45

know changes in rules um the stretch period is not necessarily as long as it used to be um but that's what's getting

41:51

you the net Legacy if you're looking for gross numbers and kind of how the overall portfolio is developing over

41:58

time the explore section well first of all it's just really helpful in general

42:04

um especially for the advisor it can be a little much for a client but um if you go to explore and go to the portfolio

42:11

you will see how the the taxable tax FR and taxfree balances are developing over

42:17

time um you can see because there's a floor in this case on the tax deferred balance um we're not we're not ever

42:25

quite uh you know getting it down to zero um but the taxfree balance is year

42:31

so if you were curious well you know what if somebody dies in uh you know 10 years where am I well by then I've

42:39

actually I've I've substantially reduced my um my tax deferred balance right and these are gross of tax numbers so you

42:45

can kind of see all right you know maybe back at the envelope I'm at $46,000 you know what what might the

42:52

taxes be um it's very different than you know at the beginning

42:57

balance is is also quite a bit lower so this can be a really useful thing just as long as we're here I guess one other

43:04

um place that I'll I'll point out a few things is um the income section if you're ever

43:10

wondering what all is going on taxwise in a plan this is a great place to go so

43:15

for example um this dark purple or darker purple is Roth conversion so I

43:21

can see you know okay I've got five years of Roth conversions in this plan right they're just little mop up in 2028

43:27

but otherwise four years you can see um you know what what all is going on in

43:33

terms of uh you know do I have some um you know how how much am I receiving

43:39

taxfree so um so the 0% bracket here um

43:45

you may know there is no 0% bracket uh technically in the US tax code so what is that well that's your deduction your

43:52

standard deduction um very soon uh income lab will be covering itemized deduction so it's anything deductible

43:58

it's you know it's those qcds it's uh distributions from roths it's anything that's that's taxfree is down here so

44:05

this can also be a great place if you're ever kind of looking to understand a plan um the income Tab and like I said

44:13

the portfolio tab if you're curious about um well what if we don't last you

44:19

know the entire plan which is a perfectly reasonable question um you know what what do things look like there

44:26

um so yeah this break even is a break even from the living client's point of

44:32

view it is not a break even from a beneficiary's point of view um we did have someone ask can I

44:40

look at um what would happen if if a client you know if one of a a couple

44:46

passes away because that is one of the the tax Torpedoes um that is uh is

44:51

doable as well so you know I always as we talked about in the first couple sessions we usually want to copy plans

44:57

whenever we're making um making changes so you know I'm going to say uh you

45:05

know maybe we'll uh we'll have you know John and uh 2035 here um so in order to

45:16

set kind of a firm date of death for one of the spouses I'm going to go to the advanced

45:24

settings which we'll load it here

45:30

and all I do is instead of using um mortality tables to figure out the

45:35

length of the plan and instead of using um you know this uh how do I feel about

45:43

my longevity right am I sort of above average below average I'm just going to change John to um to a specific date of

45:51

death I think I said it was going to be 2040 um doesn't really matter when I when I put it at the tax taxation wise

45:58

John will be alive um for 2040

46:04

um save it and go back to the plan so now what what's going to happen is basically the plan will totally adjust

46:11

in 20 in this case 2041 where now we'll be um on single uh

46:19

tax brackets we will have um you know in this case for example we we're going to

46:25

have a rollover spousal roll over you can see how nothing nothing nothing and then in uh 2041 all of those assets go

46:34

over to to Mary now they're going to be on her rmds right and if we go to tax lab we'll

46:41

be able to see the the effect of that so I that's a really good question that uh we often get and we we got today as

46:49

well okay let me see uh if there are any other

46:57

let's see here oh somebody was asking just you know is there a way I can set a default tax distribution strategy um in

47:05

the app there is um so I've been going over the advanced settings for a

47:11

particular plan that's where you set all these you know special um you know floors and ceilings

47:17

and years when I allow rth conversions and so on if you're just looking to set overall defaults uh for your account

47:25

this top section the the the menu across the top is think of it as overall stuff

47:31

um and you can set a um a default uh withdrawal strategy so maybe you have it

47:37

as prata but you want it to be taxable text for Textfree um you can make that change here um you could even set you

47:46

know a default floor on the tax deferred balance um so that anytime you create a

47:51

new household um with its own new household plan these settings will be applied so that you don't you don't have

47:57

to make if if you have a kind of a favorite thing to do um that's uh that's

48:02

where you want to start um now that won't affect any plans you've already created and it won't affect if you've

48:08

you know if you're making a copy of a plan or something it's going to copy all the actual settings of the plan you're copying not using your defaults but but

48:14

that's a a good place if you're looking to save some time time has flown here Jason I mean

48:20

absolutely I don't know if we're yeah so uh let's I think let me just see if

48:27

there's any uh pre questions oh I do want to hit this one so let's let's go ahead and answer it I suspect some of

48:33

our 42 questions are are related to this um how do you or people on your team

48:39

work with any other tax related software or planning related software so this is you know tax smart distribution planning

48:45

it's strategy it's long-term I think you're also a holista plan user can you talk a little bit

48:50

about that absolutely yeah we use them we use them in in unison with one another so we think of income lab you

48:58

know tax lab that's going to be um strategic tax planning whereas holistic

49:04

plans going to be more more year by year more tactical in nature where we're able to Target um you know the the specific

49:11

bracket to the precise figure where we're factoring in your modified adjustable gross income and how that's

49:17

going to influence herma brackets and and all those details so it is is very much a coordinated effort um when we're

49:24

we're executing and pulling the trigger on the the final Roth conversion for the year I will note um typically we do Roth

49:31

conversions potentially twice a year um so number one at the beginning of the year we'll often times identify a dollar

49:38

amount that we're going to convert specifically now since we're under tcja and most of our modeling in current

49:45

state we will model just uh Roth conversions under tcja we'll evaluate that result in

49:54

comparison to ra conversions Beyond tcja so that's that's an important

50:01

element to note but then also the idea that um you know every year is unique to

50:06

our client maybe they choose to gift in one given year and historically we didn't have that in the plan or maybe

50:13

they they elect to buy a vehicle add one of these this happens more times than not I I do encourage my clients to live

50:19

their wealth which I think that that theme is kind of riging true and and has really been echoed over the last five

50:26

sessions but you know we we will meet and we'll evaluate their resources and

50:31

ultimately most of the clients I work with really don't have this huge Legacy goal at the end of plan and therefore um

50:38

they they use those conversations to give themselves permission to buy that vehicle uh that they they wanted to

50:45

purchase had one the other day that purchased his wife um a brand new SUV

50:51

and it was literally a week after we had a conversation that they had more spending capacity that they could could

50:56

could fulfill and utilize so it's it's the ongoing process it's understanding

51:02

here's my total Roth conversions for the year will oftentimes execute 50% of that

51:07

Roth conversion depending on the market conditions optimally executing a Roth conversion in a down market and then

51:14

we'll execute the other half at the end of the year when we've got a more clear

51:19

understanding of their distributions taxable income that has occurred through all their income sources for the first

51:26

you know 11 months one other question actually that

51:31

I think is uh we get a lot of questions on are there we've talked in this

51:36

session about some pretty advanced stuff you know qcds which by the way I

51:42

realized it didn't mention how I do that um the way that you do that is simply creating an expense um could be other

51:49

variable could be Baseline where the type is Charity right that's so you need a you need a an expense to to match to

51:57

that but we talked about qcds we talked about floors and ceilings and years and and so on that's all great uh for the

52:05

advisor to make sure we're dialing things in what what actual visuals or reports um do you use when you're

52:11

talking about clients about this presumably it's not the advanced settings it is not no it is it is right

52:18

it is right here it is tax lab uh and it's this these statistics this is this

52:25

is where we focused um if we get any deeper it's usually um you know where

52:31

where we're evaluating those tax brackets just to demonstrate okay you'll notice here we're targeting Roth

52:36

conversions the 24% bracket over the next two years here's the output and

52:42

then maybe we'll do a comparison to say okay larger Roth conversions under tcja smaller Roth conversions for the

52:48

remaining five years after the exporation the S yeah yeah and I don't

52:53

know if people noticed but I was showing in the advance setting there is the place if if you wanted to just test out

52:59

hey what if they don't Sunset you just uncheck that um all right great questions

53:08

um let's see all right we have so many questions here I'm sure we're gonna end up doing some videos on this but um

53:14

there's several that are asking kind of about even more um customization for

53:19

example somebody asked well can I choose where to pay the taxes from you know for for periods a lot of that I can't go

53:26

through all you know 42 questions right now but a lot of that will be doable if

53:32

you simply um create a forced distribution from a particular account

53:39

as I mentioned the software will use whatever is already available and that you've already paid taxes on um first

53:46

because why not that's definitely the most efficient way so you can on any account you can create a forced

53:53

distribution by going to accountant distribution settings settings distribution settings and then say

53:58

specify a distribution for this account and then maybe it's a onetime thing maybe it's for a couple years if you're trying to force one account to pay the

54:06

taxes we often get this with like a more of a cash account right where you just got a lot of cash there you're hoping to

54:12

use that to fund your WTH conversion go ahead and do that using the this kind of customization of the distributions so

54:19

that's a that I think that covers a multitude of these um of these uh uh

54:25

kind of questions about uh prioritizing where you're paying taxes from or or how

54:31

the how things are coming out um all right just a reminder please

54:37

upvote anything

54:44

uh we'll definitely be uh taking a look at these and trying to consolidate them

54:49

and do some answering either this uh next session or with a video um

54:59

all right maybe maybe since there are quite a few maybe that we look at the ones that uh would be asked towards

55:06

Jason versus the software yep can you find one for us

55:11

Taylor um so Jason I'm curious how you are explaining paying Roth conversion

55:17

taxes and practice and how you coordinate with CF CPAs EAS and clients good

55:24

question yeah this is this is a very important element we consider

55:30

ourselves um well our clients consider us oftentimes kind of the the relationship

55:36

manager or the CFO of of their financial situation of their family and so our job

55:42

is to kind of coordinate with the other advisors they have in place whether that's an estate attorney whether that's

55:48

a CPA or an EA an accountant so on and so forth and and when it comes to conversation with accountants we want to

55:54

get the accountant stamp of approval uh I do let them know in advance uh

56:00

traditionally when they approach their CPA to talk about these elements it might be a coin flip if the CPA agrees

56:07

with the size of Roth conversion that that we ultimately um you know

56:13

determined is going to be optimal and so I'll just ask a question with that CPA when we get on the line you know there's

56:19

a lot of Tax Strategies we hear about Roth conversions being one of those

56:24

what's your what's your take on Roth versions tell me what's your temperature and I have them inform me of their

56:30

temperature and then once I have an understanding of that CPA's attitude

56:35

then I'm able to position transition so on and so forth and what I will say is

56:41

I'll say nine times out of 10 uh it might actually be higher than that when when we show cois and accountants and

56:50

CPAs this software they are blown away absolutely blown away it's unlike

56:56

anything they've ever seen and when we go through our process and our approach um they're they're they they turn into

57:03

referral sources they turn into cois and so that's why it's really important to go into those conversations with a super

57:11

open mind and ask them how they feel about these different approaches and strategies so you can be Advocates you

57:17

can work together uh in order to to help our client that's the end result right we want the best the best end result for

57:24

our clients is possible and if there's a way we can can keep more money on on their their plates the

57:33

better okay um then the another one is kind of it's from an anonymous uh do and

57:41

you don't have to answer it but do you charge a financial planning fee for your time in preparing reports and

57:49

Analysis it depends on that we we do two different cohorts we have cohorts that

57:54

uh we have a style assets under management and then we have cohorts that just pay us for financial planning fees

58:01

just straight financial planning or do-it-yourselfers uh those do yourselfers that that want to continue

58:06

to manage their own dollars manage their own accounts and the Investments and they just want us on the planning side

58:12

tax planning side distributions we we we do both but we don't tandem the two we

58:17

don't we don't stack them you're one or the other and then Jason how do you address

58:23

a client that says I might I might pay all of those taxes today and die three years from now has that come

58:32

up

58:37

possibility and and I think what's really important is is to understand what's really an

58:45

objection versus a comment because is that is was there a

58:54

question or was it just a comment and you can and probe deeper say to what

58:59

do you what do you mean by that and understand where they're coming from

59:05

that's really really important I always a question often times solicits an

59:11

additional question for me a client poses a question if Prospect poses a question I need to I need to dive deeper

59:17

I need to understand their train of thought and I'm assuming their train of

59:22

thought if I just immediately go into an answer to address it

59:28

yeah that's a that's a great point we oh go ahead Jus good good place to end I

59:33

think uh yeah awesome awesome questions and also on that last question that that

59:38

does get to you know maybe they're expressing just a little reticence on you know how large that number looks or

59:45

something right I think we've talked about this the last two sessions there's Art and Science in uh in any kind of

59:51

financial planning um it can sure be tempting when you see a chart like this

59:57

you say well hang on 7.99 is lower than uh 7 8.77 or 8.1 yeah it is but you know

1:00:06

these are all saving people money right and so maybe that is a a time if you really just discover that oh it's just a

1:00:12

discomfort with with a large check uh coming out of a then okay well maybe this is the point where you say hey

1:00:18

let's just do 22 still saves you a bunch of money we're good um so anyway I don't

1:00:25

know if you have comments that Jason well I would just go back to your your your point and it is it is very much art

1:00:32

and it's really in relation to helping the client or the prospect feel

1:00:37

comfortable and feel confident in their decision and meeting them where they are

1:00:42

and making sure that they can lay their head down at night and get that Ro that return on sleep and maybe it isn't

1:00:48

maximizing the savings and maybe it isn't maximizing that 32% tax bracket

1:00:54

that's okay um you know we've evaluated the options and ultimately come to a

1:01:01

confident uh decision moving forward and that's that's valuable yeah just being

1:01:06

able to address that simple question of hey this is what I'm doing where do I get the money from do I do Roth

1:01:12

conversions and show that you have taken that question super seriously it's not something at least from what I hear it

1:01:18

is not something that all advisors do so there is a there is some real value here

1:01:23

and you know the the the bad news is the tax system is extremely complicated but that's also you know the good news is

1:01:30

it's extremely complicated so there's a lot of value you can add for a client here so with that we're going to take

1:01:35

the Q&A um and and we will as we've done in the past we'll include some in next session we probably will end up doing

1:01:42

some videos to answer some of the others so I'm sorry we weren't able to get to uh to everybody today but obviously a

1:01:48

ton of interest in this topic and uh without a doubt because of that something we will return to many more

1:01:55

times on in lab webinars um so thank you everybody thank you Jason this was this was

1:02:00

great thank you all right remember the survey at the end everyone so let's shut her down so

1:02:07

that survey we send thank you thank you